Fake rent receipt won't help you lower tax burden anymore
MUMBAI: For as long as anyone can remember, producing fake property rent receipt, often from parents and relatives, has been an easy way to lower tax burden. Such cavalier disregard for tax rule was overlooked by most employers as well as taxman, who possibly felt it was a minor transgression. Perhaps, not anymore.

The income tax department now has good reason to insist on proof from the tax payer showing that he is indeed a genuine tenant, staying in the property in question.
The income tax department now has good reason to insist on proof from the tax payer showing that he is indeed a genuine tenant, staying in the property in question.

A salaried employee receiving 'house rent allowance' from the employer could escape paying tax on at least 60% of this amount by generating sham rent receipt.

However, according to a recent tribunal ruling, the assessing officer can now demand proof — such as leave and licence agreement, letter to the housing co-operative society informing about the tenancy, electricity bill, water bill etc. — in allowing a lower taxable income as computed by a salaried employee.

"The ITAT (Income Tax Appellate Tribunal) ruling has now laid down the criteria for the assessing officer to consider the claim of a salaried employee and if necessary question its justification. This will put the onus on the salaried class to follow the rules in availing the tax rebate," said Dilip Lakhani, senior tax advisor, Deloitte Haskins & Sells LLP.
Understandably, none of the required documents are available with salaried employees submitting fake rent receipts. There may not be any actual rent outflow from the person as he may be staying in his family home and collecting a receipt signed by his father. Even if a person is a genuine tenant, the amount mentioned in the receipt may be more than what's paid. This will not pose a problem if the person receiving the rent is outside the tax net. There are several instances where a person may be staying separately but claiming to pay rent to a relative owning another property in the same city; or, one of member of the family claiming a loan repayment deduction while another submitting a false rent receipt to evade tax.
Given the widespread practice of paying tax on only a small slice of HRA, it's unclear how far tax officials would go in questioning such claims and pinning down salaried employees.

However, ITAT Mumbai's decision to strike down the HRA exemption claim of a salaried individual for rent paid to her mother could set a precedent. "Technology and stricter reporting system may make it easier for the (income tax) department. For instance, there was a time when many never bothered to pay tax on interest earned from bank fixed deposits. Today, it’s almost impossible. In case of HRA exemption, the assessing officer may crosscheck whether the address mentioned in the ITR form is the same as the property on which rent is paid," said a tax officer.

The Tribunal ruling comes a few months after the government's decision to cap the loss on property bought with borrowed money. Till now, a person paying an interest of, say, Rs 3 lakh on a loan (he took to buy the property) and earning Rs 1.2 lakh as rent could show the difference of Rs 1.8 lakh as 'loss' and set it off against salary income to pay lower tax.

Salaried employees get no breaks from taxes. This was a small infarction of the rules which was overlooked by IT as well as employers for all this time.

While farmers get all kinds of tax holidays and now Maharashtra farmers are on the verge of getting their loans/debts written off by the government, the poor salaried class has to get further squeezed. Farmers are the biggest parasites in India, but well thats another topic.

I like that Modis trying to clean house, but in his zeal, he is going to further screw the salaried class. Instead of just going after the salaried class, why not study the reasons that the salaried class has to resort to these tactics?

I expected the finance minister Jaitley and PM Modi to come up with ways to make tax lighter on the salaried class and instead tighten screws on those who evade taxes.

We had rented our place in NCR area to a Haryana govt officer, he asked for the rental agreement in his daughter's name, we complied with some hesitation .. His daughter was living in her husband's owned home in Pune, but this way she could claim a good portion of the Rs. 20K rent from her employer. The Haryana govt officer was playing in crores .. ahem ahem.. was building a house nearby worth 2-3 Crores.

In a way I'm glad this kind of cheating will be tough to do, but it's few and far between. Penny wise and pound foolish.

Salaried employees get no breaks from taxes. This was a small infarction of the rules which was overlooked by IT as well as employers for all this time.

While farmers get all kinds of tax holidays and now Maharashtra farmers are on the verge of getting their loans/debts written off by the government, the poor salaried class has to get further squeezed. Farmers are the biggest parasites in India, but well thats another topic.

I like that Modis trying to clean house, but in his zeal, he is going to further screw the salaried class. Instead of just going after the salaried class, why not study the reasons that the salaried class has to resort to these tactics?

I expected the finance minister Jaitley and PM Modi to come up with ways to make tax lighter on the salaried class and instead tighten screws on those who evade taxes.

But well... taxes are as certain as life and death!

Totally agree...cha pai ..tax base should be atleast 20% f the population and not the current 3-4% salaried class only